Column 11 · Relationships and Customer Equity · Era 5, Assets and Accountability (2000s)
Customer Equity and CLV
Inputs: resources and assets · Landmark · Cluster IV, Customer and Brand Assets
Description
Gupta, Lehmann, and Stuart showed that the value of a firm's customer base approximates the value of the firm, and Rust, Lemon, and Zeithaml developed return on marketing based on customer lifetime value and the value, brand, and relationship drivers of customer equity.
Managerial Implications
The sum of customers' lifetime values is customer equity, and it can approximate firm value. Managing by CLV changes decisions: acquisition spending is capped by lifetime value, retention improvements are worth more than acquisition improvements, and investments in value, brand, and relationship drivers can be compared in a single return metric. Build the CLV model, however crude, and use it to allocate the marketing budget.